Court Supervised Rehabilitation-1

Court Supervised
Rehabilitation
Prof. Maria Lulu G. Reyes

The case of
On the Brink Corporation

(OtBC)
• a well-established and
reputable domestic
company
• heavily invested on
research and development
of next generation products
The case of
• recently announced that it has developed a fuel

saving device that can reduce fuel consumption
by at least 60% when attached to the car’s
engine.
• Registered and patented the same

The case of
• announcement was supported with various

certifications attesting to the effectiveness of
the product
• exhaustive laboratory tests have likewise

supported the claim of the company
The case of
1. Liquidity problems
• OtBC used almost all of its
resources in developing the
product and is now having
difficulty meeting its debts
and obligations
• Not enough money to

manufacture the products
The case of
2. Threats of foreclosure and
garnishment
• its major creditor, Bankable Credit,

has initiated the proceedings to
foreclose the new machineries and
equipment, which OtBC used as
security for its loan obligation
• other secured creditors are also

threatening to garnish or foreclose
other company assets
The case of
3. Stoppage of work and supplies

delivery
• suppliers of the materials needed
for producing the product has also
withheld delivery and is
demanding immediate payment
before it resumes delivery.
• Workers have also filed labor

cases against OtBC for unpaid
benefits and threatened to strike
The case of
• invention is worth millions of

dollars and company has
great potentials
• the moment any of the

creditors succeeded in
enforcing its claim against
the corporation, its chance
of developing and selling the On the Brink Corporation
product becomes difficult, if
not impossible.
The case of
• What are the options available to OtBC?

The case of
OtBC can meet with its

creditors to
• Ask for time to find
white knight investor.
The case of

creditors to
• Convince them
to restructure
existing loan
agreements
The case of

creditors to
• Ask for time to find white
knight investor.
• Convince them to
restructure existing loan
agreements
• Invite them to
become part
owners (i.e.
convert loan to
equity)
The case of

creditors to
restructure existing
loan agreements
• Invite them to
become part owners
(i.e. convert loan to
equity)
The case of

creditors to
loan agreements
• Invite them to
become part owners
(i.e. convert loan to Mode 2: Pre-Negotiated
equity) Rehabilitation
The case of

creditors to
Restructuring
loan agreements Agreement/Re
• invite them to habilitation
become part owners
Pre-Negotiated Plan
Rehabilitation
equity)
The case of
creditors to
restructure existing Restructuring
• invite them to
become part owners habilitation
(i.e. convert loan to Pre-Negotiated Plan
Rehabilitation
equity)
Approval or endorsement of creditors holding at least 2/3 of the total

liabilities or the debtor
• secured creditors holding more than 50% of the total secured claims of
the debtor
• unsecured creditors holding more 50% of the total unsecured claims of
the debtor
The case of
Approval by the
• debtor;
• creditors representing at least 67% of the secured obligations of the debtor;
• creditors representing at least 75% of the unsecured obligations of the debtor; and, creditors
holding at least 85% of the total liabilities, secured and unsecured, of the debtor; and,
• Publication of the notice of the OCRA

creditors to
restructure existing Restructuring
• invite them to
become part owners habilitation
(i.e. convert loan to Pre-Negotiated Plan
Rehabilitation
equity)
The case of
• OtBC met with its

creditors to
loan agreements
• Invite them to
become part owners
✔
Trade creditors/suppliers
agreed to continue to
equity) supply materials
The case of

creditors to
white knight
investor.
✔
• Convince them to Unsecured creditors
restructure existing agreed to convert loan to
loan agreements equity
• Invite them to
✔
become part
owners (i.e. convert supply materials
loan to equity)
The case of

creditors to
white knight
investor.
✔
• Convince them to Unsecured creditors
restructure existing agreed to convert loan to
loan agreements equity
• Invite them to
✔
become part owners
(i.e. convert loan to supply materials
equity)
The case of
OtBC met with its

creditors to
• Ask for time to
find white knight
investor.
restructure Unsecured creditors
existing loan ✔ agreed to convert
agreements loan to equity
• Invite them to
become part Trade Involuntary Petition
✔ creditors/suppliers
owners (i.e.
agreed to continue
convert loan to
to supply materials
equity)
Voluntary Petition
The case of
OtBC met with its

creditors to
restructure existing Unsecured creditors
loan agreements ✔ agreed to convert
• Invite them to loan to equity
become part owners
(i.e. convert loan to Trade Involuntary Petition
equity) ✔ creditors/suppliers
agreed to continue
to supply materials
Voluntary Petition
The case of
Liquidation Proceedings
• OtBC can close business and file a petition for Voluntary
Liquidation (Section 90, FRIA)
• OtBC can wait for a creditor to file Involuntary Petition
for Liquidation (Section 91, FRIA)
The Remedy of Liquidation
• the historical and traditional

method of dealing with the
insolvency of a corporation.
• ultimate objective is to
liquidate asset of debtor to pay
its creditors and terminate
commercial activities
• tends to be universal in its

concept, acceptance and
application
The Remedy of Liquidation:
Process
Adjudication
Order of Gather/preserve/s
Petition of creditors
Liquidation ale of corp assets
claims
Termination
Appointment Closure of
of Liquidator Business
of corp Distribution of proceeds
powers (applying priority of claims
principles
Dissolution of
Corporation
Economic theory behind
liquidation
• in a competitive market economy, an

enterprise that is unable to compete has no
place in and should be removed from the
market place
• insolvency is the principal identifying mark
of an uncompetitive enterprise
• If business is needed, new investors will
step in to fill the vacuum if insolvent debtor
is removed
Legal Theory Behind Liquidation
• liquidation process can only function

effectively if it is regarded as a collective
process, from the time of its inception up to
distribution of assets and dissolution of the
debtor
• Only way to ensure an orderly, transparent

and predictable distribution of remaining
assets of the debtor
The case of
Corporate Rehabilitation Proceedings

1. OtBC can file a voluntary petition for Corporate
Rehabilitation
2. A creditor can file a petition for Involuntary

Corporate Rehabilitation
Economic Theory Behind
Rehabilitation Proceedings
• inefficiency is not always
the cause of corporate
failures in the market
place
• remedy of liquidation is not
always appropriate and efficient
• corporation with a reasonable prospect of survival should
be given opportunity if it can be demonstrated that
 there is greater value and greater benefit for creditors in the
long term
 keeping essential business and other component parts of a
corporation together is more cost efficient than liquidation
Legal Justification Behind
• facilitates quick and easy

access to remedies that
would make rehabilitation
feasible
• provides sufficient protection
for all those involved in the
process
• provides a structure which
permits the negotiation of a
commercial plan
Legal Justification for
 Enables a majority of creditors to bind all other

creditors by the democratic exercise of voting rights
(cram down);
 Provides for judicial or other supervision to ensure

that the process is not subject to unfair manipulation
or abuse.
 Enables the emphasis on the concept of the

collective nature of the procedure.
Debt Relief Proceedings: Nature
Collective Procedure
• Distinguishes insolvency proceedings from practically
any other legal procedure.
• Endeavors to accommodate all of those who are
affected by or have an interest in the insolvent
debtor.
 insolvent debtor
 directors and shareholders,
 Secured and unsecured creditors
 employees,
 guarantors of the debtor
 Government
 etc.
Debt Relief Proceedings: Nature
• all about deciding who to pay, in what order

to pay, and how much to pay in an efficient
and equitable manner
• efficiency and equity sometimes may be

competing policy goals
• the way a country pursues those goals,

insolvency law says a lot about the attitudes
of its legal system
Development of Philippine
Laws and Rules on Corporate
Rehab
Insolvency Law (Act No. 1956)
KINDS OF INSOLVENCY
1. Voluntary insolvency—an insolvent debtor owing debts
exceeding in amount in the sum of P1000, may apply to be
discharged from his debts and liabilities by petition to the RTC of
the province or city in which he has resided for 6 months next
preceding the filing of the petition
2. Involuntary insolvency—an adjudication of insolvency may be
made by the petition of 3 or more creditors, residents
of the Philippines, whose credits or demands accrued in
the Philippines, for the amount of which credits or
demands are in the aggregate of not less than P1000.
Rehab
Section 5 of P.D. 902-A, as amended, vested the SEC with
jurisdiction
“"petitions of corporations, partnerships or associations to be
declared in a state of suspension of payments in cases where the
corporation, partnership or association possess sufficient property
to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to
cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created
pursuant to (PD 902-A)."
Rehab
Section 5 of P.D. 902-A, as amended, vested the SEC with
jurisdiction
“"petitions of corporations, partnerships or associations to be
declared in a state of suspension of payments in cases where the
corporation, partnership or association possess sufficient property
to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to
cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created
pursuant to (PD 902-A)."
Rehab
In order to effectively exercise its jurisdiction, SEC is
granted the power to
a. appoint a rehabilitation receiver" and
b. create and appoint a management committee x x x to

undertake the management of corporations, partnerships or
associations in appropriate cases when there is imminent
danger of dissipation, loss, wastage or destruction of assets
or other properties or paralyzation of business operations of
such corporations or entities which may be prejudicial to the
interest of minority stockholders, parties-litigants or the
general public.
Rehab
 in addition to proceedings for simple suspension of

payments, P.D. 902-A introduced a variation:
proceedings for suspension of payments where the
petition seeks the appointment of a rehabilitation
receiver or management committee.
Rehab
Rules of Procedure on Corporate Recovery
 Approved on January 15, 2000
 Sought to rationalize the procedure on corporate
rehabilitation and suspension of payments, the Rules
explicitly provide for an independent action for
rehabilitation, i.e. separate from a proceeding for
suspension of payments.
Rehab
Securities Regulation Code
 Passed on July 19, 2000
 transferred jurisdiction from the SEC to the regular
courts over cases enumerated in Section 5 of P.D.
902-A, and allowed the Supreme Court to designate
branches of the appropriate Regional Trial Courts to
hear and decide cases of such nature
Rehab
Interim Rules on Corporate Rehabilitation
 Interim Rules resemble to a large extent the
SEC Rules of Procedure on Corporate Recovery
 Promulgated by the SC on November 2000 and
took effect on December 2000.
 SC designated 60 RTCs as commercial courts
to hear and decide SEC cases.
Republic Act No.10142 - 42
Financial Rehabilitation and

Insolvency Act
Passed by Congress in February 2010
Lapsed into law (not signed by the
President)
Applicable to existing proceedings unless
court deemed it will cause prejudice
43
Financial Rehabilitation Rules

of Procedure (2013)
 Promulgated by the SC on
August 27, 2013
 apply to petitions for
rehabilitation of
corporations, partnerships,
and sole proprietorships.
 Rules on Liquidation are
currently being drafted by
the Rules
Financial Rehabilitation and
Insolvency Act
FRIA
45
Declared Policy of FRIA

 to encourage debtors and creditors to collectively
and realistically resolve and adjust competing claims
and property rights.
 ensure a timely, fair, transparent, effective and
efficient rehabilitation or liquidation of debtors
 maintain certainty and predictability in commercial
affairs, preserve and maximize the value of the
assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable
treatment of creditors who are similarly situated.
Nature of proceedings 46
under FRIA
 Proceedings initiated are considered in rem, summary,

and non-adversarial in nature.
 Jurisdiction over all persons affected by the proceedings
is acquired upon publication of the notice of the
commencement of the proceedings in any newspaper of
general circulation
 proceedings operate against the whole world and the
orders issued by rehabilitation court are binding not only
upon those parties who appear in such proceedings but
also upon parties who were summoned by publication but
did not appear
Nature of proceedings 47
under FRIA
Rehabilitation proceedings are summary and

non‐adversarial in nature, and do not contemplate
adjudication of claims that must be threshed out in
ordinary court proceedings. Adversarial
proceedings similar to that in ordinary courts are
inconsistent with the commercial nature of a
rehabilitation case. The latter must be resolved
quickly and expeditiously for the sake of the
corporate debtor, its creditors and other interested
parties.
Advent Capital and Finance Corporation v.
Alcantara, G.R. No. 183050, 25, January 2012
Rehabilitation Proceeding 48
as a Remedy
 Rehabilitation is xxx available to a corporation

who, while illiquid, has assets that can generate
more cash if used in its daily operations than sold.
Its liquidity issues can be addressed by a
practicable business plan that will generate
enough cash to sustain daily operations, has a
definite source of financing for its proper and full
implementation, and anchored on realistic
assumptions and goals.
Wonder Book Corporation v. Philippine Bank of Communications

676 SCRA 489 (July 16, 2012)
Rehabilitation Proceeding 49
as a Remedy
 remedy should be denied to corporations whose

insolvency appears to be irreversible and whose sole
purpose is to delay enforcement of any of the rights of the
creditors, which is rendered obvious by the following:
a. the absence of a sound and workable business plan;
b. baseless and unexplained assumptions, targets and
goals;
c. speculative capital infusion or complete lack thereof
for the execution of the business plan;
d. cash flow cannot sustain daily operations; and
e. negative net worth and the assets are near full
depreciation or fully depreciated.
Wonder Book Corporation v. Philippine Bank of Communications
676 SCRA 489 (July 16, 2012)
Court Supervised Rehabilitation
Proceedings: Initiation of Petition
Corporate Rehabilitation: Who
can initiate court supervised
rehabilitation
Two types of court supervised rehabilitation
proceedings
1. Voluntary petition – filed by the debtor or group of

debtors
2. Involuntary petition – filed by a creditor or group of
creditors
52
Definition of Debtor
A “debtor” is a
a. sole proprietorship duly registered with the DTI
b. partnership duly registered with SEC
c. corporation duly organized and existing under Philippine
laws
d. individual debtor who has become insolvent as defined
herein.
53
Definition of Debtor
The following are excluded from FRIA

a. Banks – jurisdiction with BSP;
b. Insurance Companies – jurisdiction with Insurance
Commission;
c. Pre‐Need Companies – jurisdiction with Insurance
Commission;
d. National or Local Government Units
 Note that GOCCs and GFIs other than banks are covered
by the FRIA unless their specific charter provides otherwise
The case of
L
I
N
BestHaus E
Corp. A
R
Devt.
Corp
55
Group of Debtor
A group of debtors may jointly file a petition for
rehabilitation when:
a. one or more of its members foresee the
impossibility of meeting debts when they
respectively fall due;
b. the financial distress would likely adversely affect
the financial condition and/or operations of the
other members of the group; and/or
c. the participation of the other members of the
group is essential under the terms and conditions
of the proposed Rehabilitation Plan.
56
Definition of Creditor
 A “creditor” is a holder of a claim against the debtor that arose

on or before the commencement date.
 modifies Finasia Investments and Finance Corporation vs.
Court of Appeals insofar as it holds that the term “claims” is
limited “to debts or demands of a pecuniary nature” or to an
“assertion of a right to have money paid”.
 adopts the ruling in the earlier case of Jimenez vs. BF Homes,
Inc., et al, (GR No. 76661 [1987]) where the Supreme Court
enunciated the principle that “when the law speaks of ‘all
claims’ for actions against corporations under management or
receivership being suspended, the words ‘all claims’ mean all
kinds of claims and is not limited to money claims only”.
57
Definition of Claim under FRIA

 a claim includes all claims or demands of whatever
nature or character against a debtor or its property,
whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, including, but not
limited to;
1. all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and
2. claims against directors and officers of the debtor arising from acts
done in the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the creditors
or third parties from filing cases against the directors and officers acting
in their personal capacities .
Voluntary Petition for
Voluntary Corporate
Rehabilitation: Who can file
If voluntary, petition can be

initiated by any of the
following:
1. Owner of sole
proprietorship
2. majority of the partners
3. stockholders representing
2/3 of outstanding
capital stocks or members.
Minimum Allegations: Voluntary
1. The debtor is insolvent

• it foresees the impossibility of paying its debts as they
fall due in the ordinary course of business, or
• its liabilities are greater than its assets
2. The rehabilitation or continuation of operations is

economically feasible
3. The creditors can recover, by way of the present

value of payments projected in the plan, more if the
debtor continues as a going concern than if it is
immediately liquidated (w/in 120 days from the
preparation of the rehabilitation plan)
Minimum Allegations: Voluntary
4. Identification of the debtor, its principal activities

and its addresses;
5. Statement of the fact of and the cause of the

debtor’s insolvency;
6. The specific relief sought pursuant to the FRIA;
7. The grounds upon which the Petition is based;
8. Other information as may be required under the FRIA

depending on the form of relief requested;
The following has to be included
“as part and parcel of petition”
Voluntary Corporate Rehabilitation:
To include “as part and parcel of
petition”
a. Tax clearance or evidence of compromise with the
BIR;
b. Income tax returns as received by the BIR for the
past 2 years prior to filing of the petition;
c. Audited financial statement of the debtor at the end
of its last fiscal year;
d. Interim financial statement not earlier than 30 days
prior to the date of the filing of the petition duly
certified under oath by the appropriate officer;
e. An inventory of all its assets including receivables
and claims against third parties;
Voluntary Corporate Rehabilitation:
To include “as part and parcel of
petition”
f. Schedule of the debtor’s debts and liabilities, including
a list of creditors with their addresses, amounts of
claims and collaterals, if any;
g. Schedule of payments and disposition for the 1 year
prior to the filing of the petition;
h. A Rehabilitation Plan; and
i. The names of at least three (3) nominees to the
position of rehabilitation receiver. [Sec. 12, FRIA; FR
Rule 2, Sec. 2]
Involuntary Petition for
Involuntary Corporate Rehabilitation:
Who can file
Can be initiated by
1. any creditor or
2. group of creditors
with a claim of, or the aggregate of whose claims is, at
least P 1 M or at least 25% of the subscribed capital stock
or partners' contributions, whichever is higher
[Sec. 13, FRIA; FR Rule 2, Sec. 4]

Involuntary Corporate
Rehabilitation
Can be initiated by any creditor or group of creditors if
any of the following is present:
1. there is no genuine issue of fact/law on the claim/s of the
petitioner/s and that the due and demandable payments
thereon have not been made for at least 60 days or
2. the debtor has failed generally to meet its liabilities as
they fall due or
3. Another creditor has initiated foreclosure proceedings
against the debtor that will prevent the debtor from
paying its debts as they become due or will render it
insolvent
Contents of Petition
a. Identification of the debtor, its principal activities and

its addresses;
b. Circumstances showing that the conditions precedent to
the filing of a Petition for Involuntary Rehabilitation are
satisfied;
c. The specific relief sought pursuant to the FRIA;
d. Other information as may be required under the FRIA
depending on the form of relief requested;
Contents of Petition
f. Exact address at which documents regarding the debtor

and the proceedings may be reviewed and copied; and
g. Documents showing there is substantial likelihood that
the debtor may be rehabilitated.
h. A Rehabilitation Plan; and
i. The names of at least three (3) nominees to the
position of rehabilitation receiver.
70
Court action on the Petition

71
If sufficient in form and substance, court has to

issue Commencement Order within 5 working days
from filing of petition.
If not
 it may either give the petitioner/s a reasonable period of
time within which to amend or supplement the petition, or
submit such documents as may be necessary or proper
to put the petition in proper order
72
5 days Sufficient Yes Commencement

Petition in form & Order
substance (Suspension Order)
5 days
No Yes
Number of
days based
Corrective on court’s Sufficient
Order discretion in form &
substance
Hearing is not required for 73
issuance of
Commencement Order
 Court is not required to conduct a hearing before
issuing a Commencement Order that includes a
Stay Order (Sections 7 and 8, Rule 2 of the FR Rules)
Pryce Corporation vs. Court of Appeals

G.R. No. 172302 (February 4, 2008)
74
Contents of
Commencement Order
1. Identity of the debtor, its principal business or activity/ies
and its principal place of business;
2. Summary of ground/s for initiating the proceedings;
3. The relief sought
4. The legal effects of the Commencement Order
5. Declaration that the debtor is under rehabilitation
6. Order for the publication of the Commencement Order
7. Order to serve by personal delivery a copy of the petition on
each creditor holding at 10% of total liabilities; or the debtor
if petition is involuntary.
75
Contents of
Commencement Order
8. Appointment of a rehabilitation receiver
9. A summary of the requirements and deadlines for creditors to
establish their claims against the debtor and direct all
creditors to file their claims with the court at least five (5)
days before the initial hearing
10. Order to BIR to file and serve on the debtor its comment on
or opposition to the petition or its claim/s against the debtor
11. Ordering prohibiting debtor's suppliers of goods or services
from withholding the supply of goods and services in the
ordinary course of business
12. Order authorizing the payment of administrative expenses as
they become due
76
Contents of
Commencement Order
13. Set the case for initial hearing (not be more than 40 days
from the date of filing of the petition)
14. Make available copies of the petition and rehabilitation
plan for examination and copying by any interested party
15. Indicate the location or locations at which documents
regarding the debtor and the proceedings under Act may
be reviewed and copied;
16. State that any creditor or debtor who is not the petitioner,
may submit the name or nominate any other qualified
person to the position of rehabilitation receiver at least
five (5) days before the initial hearing
17. Issue Stay or Suspension Order
77
Effects of Commencement
Order
1. vest the rehabilitation receiver with all the powers and
functions (e.g. right to review and obtain records to
which the debtor's management and directors have
access )
2. Serve as basis for rendering null and void the results of

any extrajudicial activity or process to seize property,
sell encumbered property, or otherwise attempt to
collection or enforce a claim against the debtor
78
Effects of
Commencement Order
3. Serve as basis rendering null and void any setoff after
the commencement
4. serve as the legal basis for rendering null and void the
perfection of any lien against the debtor's property
5. consolidate the resolution of all legal proceedings by
and against the debtor to the court
Suspension Order
80
Effects of Stay or
Suspension Order
1. suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against the
debtor
2. suspend all actions to enforce any judgment,
attachment or other provisional remedies against the
debtor;
3. prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its
properties except in the ordinary course of business
4. prohibit the debtor from making any payment of its
liabilities outstanding as of the commencement date
except as may be provided herein
81
Not covered by Stay Order

1. cases already pending appeal in the Supreme Court as of
commencement date )
2. subject to discretion of court, cases pending or filed at a
specialized court or quasi-judicial agency which, upon
determination by the court is capable of resolving the claim
more quickly, fairly and efficiently than the court
3. enforcement of claims against sureties and other persons
solidarily liable with the debtor, and 3rd party or
accommodation mortgagors, as well as issuers of letters of
credit unless the property subject of the 3rd party or
accommodation mortgage is necessary for the rehabilitation
of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
82
Not covered by Stay Order

4. any form of action of clients of a securities market participant to recover
or otherwise claim moneys and securities entrusted to the latter in the
ordinary course of the latter's business; any action of such securities
market participant or the appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
5. actions of a licensed broker or dealer to sell pledged securities of a

debtor pursuant to a securities pledge or margin agreement for the
settlement of securities transactions in accordance with the provisions of
the Securities Regulation Code and its implementing rules and regulations;
6. clearing and settlement of financial transactions through the facilities of

a BSP registered clearing agency
7. any criminal action against individual debtor or owner, partner, director or

officer of a debtor
83
Panlilio, et al. vs. RTC, et al.

(G.R. NO. 173846, February 2, 2011)
 rehabilitation of SIHI and the settlement of claims

against the corporation is not a legal ground for the
extinction of petitioners’ criminal liabilities.
 prosecution of the officers of the corporation has no
bearing on the pending rehabilitation of the
corporation, especially since they are charged in their
individual capacities.
 the purpose of the law for the issuance of the stay order
is not compromised, since the appointed rehabilitation
receiver can still fully discharge his functions as
mandated by law.
84
Other legal effects of Suspension

or Stay Order
 taxes and fees due to the national government and LGUs are
considered waived upon issuance of Commencement Order until
Rehab plan is approved or petition is dismissed.
 Commencement Order and Stay Order apply even to

government financial institutions despite provisions in their
charter to the contrary
 Commencement Order is effective for the duration of the

rehabilitation proceedings for as long as there is a substantial
likelihood that the debtor will be successfully rehabilitated
Duration and condition for 85
continued effectivity of
Commencement Order
 Effectivity is for the duration of the rehabilitation
proceedings for as long as there is a substantial likelihood
that the debtor will be successfully rehabilitated
 Conditions
 Compliance with the prescribed minimum contents by the proposed
Rehabilitation Plan
 sufficient monitoring by the rehabilitation receiver of the debtor's
business for creditors’ protection
 reasonable attempts of debtor to reach consensus with creditors
on Rehab plan
 absence of false or misleading statement
 absence of acts of misrepresentation or fraud on part debtors
 favorable endorsement of the plan by the receiver
Substantial likelihood of 86
rehabilitation: Factors to
consider
Substantial likelihood of successful rehabilitation is
determined by:
a. Sufficiency of assets with which to rehabilitate the
debtor
b. sufficiency cash flow to maintain the operations of the
debtor
c. Good faith on the part of debtors
d. Not a sham petition
e. Viability of pursuing rehab plan by debtor
Actions to be taken after the issuance of
87
Commencement Order before Initial Hearing
Petition
Commencement Order
W/in 20 days from 7 days
W/in 90 days
assumption into Publish Commencement
office, Receiver to Order in newspaper of Debtor to notify
general circulation each counterparty
Establish 5 days before initial hearing of the particular
Preliminary contract that is
Registry of Filing of Creditors’ claims confirmed; if not
Claims confirmed, deemed
30 days 15 days before initial hearing terminated
Hear Filing of comments by

Opposition/ creditors
Challenge 40 days from the filing of the petition
to claim/s
Initial Hearing
Submit
undisputed
claim/s
88
Initial Hearing: Purpose
1. Determine the creditors who have made timely and proper

filing of their notice of claims
 Failure to file notice of claim in accordance with Commencement Order but
belatedly file the same is not entitled to participate in the proceedings;
but entitled to receive distributions
2. hear and determine any objection to the qualifications of

the appointment of the rehabilitation receiver
1. Direct creditors to comment on Petition and Rehab Plan

within 20 days
2. Direct Receiver to evaluate financial condition of debtor

through a Report within 40 days
Actions to be taken after the issuance of
89
Commencement Order
Petition
Commencement Order
W/in 20 days from 7 days
W/in 90 days
assumption into Publish Commencement
office, Receiver to Order in newspaper of Debtor to notify
general circulation each counterparty
Establish 5 days before initial hearing of the particular
Preliminary contract that is
Registry of Filing of Creditors’ claims confirmed; if not
Claims confirmed, deemed
30 days 15 days before initial hearing terminated
Hear Filing of comments by

Opposition/ creditors
Challenge 40 days from the filing of the petition
to claim/s
Initial Hearing
Submit 40 days from the termination of initial hearing

undisputed Preliminary Report of
claim/s Receiver
90
Report of Receiver: Contents
a. Whether debtor is insolvent – causes thereof and

any unlawful or irregular act/s by the debtor
b. Feasibility and reasonableness of underlying
assumptions, financial goals and procedures
c. Substantially likelihood of successful rehabilitation
d. Whether petition should be dismissed
e. Whether debtor should be dissolved and/or
liquidated.
Siochi Fishery Enterprises, Inc., vs. BPI 91
(G.R. NO. 193872, October 19, 2011
 The most glaring procedural infirmity committed by rehab court

is its failure to petition for rehabilitation and Rehabilitation Plan
to the rehabilitation receiver despite the explicit and clear
mandate of the Interim Rules that if the court is satisfied that
there is merit in the petition, it shall give due course to the
petition and “immediately” refer the same and its annexes to
the rehabilitation receiver x x x
 his recommendation bears much weight as it is one of the
factors which must be considered by the court if it were to
approve the rehabilitation plan
 Court made an unwarranted procedural shortcut as its finding
that there was merit in respondent corporations’ petition for
rehabilitation was made in the same Order approving
Rehabilitation Plan.
92
Action on the Petition

Petition
Commencement
Order
Initial Hearing
Receivers Report
10 days from receipt of Receiver’s Report
Convert
Give due course Dismiss the
Proceeding to
to the Petition Petition
Liquidation
93
Action on the Petition

Within 10 days from receipt of Receiver’s Report
1. Give due course to the petition
 Debtor is insolvent
 Substantial likelihood of successful rehabilitation
2. Dismiss the petition
 Debtor is not insolvent
 Petition is a sham intended to delay enforcement of creditors’ rights
 There are misleading statements or material misrepresentation in
the petition or attachments
 Debtor has committed acts of misrepresentation or in fraud of
creditors
3. Convert proceedings into Liquidation if
 Debtor is insolvent
 No substantial likelihood of substantial rehabilitation
Action on the Petition: 94
Dismissal
 If Petition is dismissed because of intent to defraud,

court in its discretion may order payment of damages
to any creditor or to any person who may have been
injured by such filing.
Action on the Petition : Given 95
Due Course
 Direct Receiver to review, revise and/or

recommend action on the Rehab plan and submit
the same or a new one within 90 days.
 Refer any dispute on rehab plan or proceedings to
ADR for a quick, efficient and fair resolution.
Action on the Petition 96
Petition
Commencement Order
Initial Hearing
Give due course

to the Petition
Petition
Commencement Order
Initial Hearing
Give due course

to the Petition
Receiver to
Review/Revise/ If there are disputes,
within 90 days Modify/Replace refer to ADR
Rehabilitation Plan
Rehab Receiver, Management 98
Committee and Creditors’ Committee
Natural or juridical person may serve as rehab

receiver
If juridical person, a natural person
possessing all the qualifications and none of
the disqualifications must be designated
Liability of rehab receiver (i.e. corporation)
and its representatives are solidary
Rehab Receiver : Qualifications
99
 Philippine citizen or resident

 Good moral character, with integrity, impartiality and
independence
 Has the requisite knowledge of insolvency and
relevant laws and trainings/experience to enable to
him to discharge his duties and obligations
 No conflict of interest unless waived by those affected
 Other qualifications that may be set by the SC later
Rehab Receiver, Management 100
Committee and Creditors’ Committee
Rehabilitation Receiver
 May or may not be be from the nominees of the rehab plan
 Creditor or debtor may nominate other person during the initial

hearing
 Court may appoint creditors’ nominee if supported by more

than 50% of the secured and general unsecured creditors.
 If debtor is a securities market participant, court has to give

priority the nominee of the appropriate securities or investor
protection fund.
Rehabilitation Receiver : 101
Power and Duties
1. preserve and maximize value of debtor’s assets during

proceedings
2. Determine viability of rehabilitation of debtor
3. Prepare and recommend Rehab Plan to the court
a. Verify accuracy of factual allegations in petition and annexes
b. Verify and correct inventory of all assets and valuation
c. Verify and correct schedule of debts and liabilities
d. Evaluate validity, genuineness and true amount of all claims
e. Take possession, custody and control and preserve value of all
assets
Power and Duties
4. Prepare and recommend Rehab Plan to the

court
f. Sue and recover, with court’s approval, of all amounts owed to
debtor
g. Have access to all needed information re operation and business
of debtor
h. Recover fraudulent conveyances, transfers, payments and
disbursements
i. Monitor operations and business of debtor to ensure that all
payments and transfer of properties are in ordinary course of
business.
Power and Duties

court
j. Determine best way to rehabilitate debtor
k. Revise, modify or recommend action on Rehab plan
and recommend action on the same
l. assume and exercise the powers of management of the
debtor
m. other powers as may, from time to time, be conferred
upon him by the court
n. submit a status report on the rehabilitation
proceedings every quarter or as may be required
Power and Duties

court
 NOTE: unless appointed by the court, Receiver is not

take over management and control of the debtor; only
recommend appointment of management committee for
specific reasons.
Grounds for Removal
 Incompetence, gross negligence, failure to perform or failure to

exercise the proper degree of care in the performance of his
duties and powers
 Lack of a particular or specialized competency required by the
specific case
 Illegal acts or conduct in the performance of his duties and
powers
 Lack of qualification or presence of any disqualification
 Conflict of interest that arises after his appointment; and
 Manifest lack of independence that is detrimental to the
general body of the stakeholders.
Compensation
 entitled to compensation for reasonable fees and expenses

from the debtor according to the terms approved by the court
after notice and hearing
 Includes expenses of direct employees and independent
contractors
 Prior to hearing, be entitled to reasonable compensation

based on quantum meruit
 costs shall be considered administrative expenses.
 shall take an oath and file a bond, in such amount to be fixed

by the court, conditioned upon the faithful and proper
discharge of his powers, duties and responsibilities.
Rehabilitation Receiver : Factors 107
for Determining Compensation
1. the size of the debtor under rehabilitation;

2. the time to be spent on such services;
3. the credentials, experience, skills and reputation of
the receiver, his direct employees or independent
contractors;
4. the benefits accruing to the debtor;
5. the complexity, importance, urgency, and nature
of the problems, issues, or tasks addressed; and
6. the customary compensation charged by
comparably skilled practitioners in other
rehabilitation cases.
Displacement of Existing 108
Management
 court may appoint and direct the rehabilitation receiver

to assume the powers of management of the debtor, or
appoint a management committee that will undertake the
management of the debtor.
a. Actual or imminent danger of dissipation, loss, wastage or
destruction of the debtor’s assets or other properties
b. Paralyzation of the business operations of the debtor
c. Gross mismanagement of the debtor or fraud or other
wrongful conduct on the part of, or gross or willful violation
of this Act by existing management of the debtor
Hearing required for creation 109
of Management Committee
 The creation of a management committee without first conducting

an evidentiary hearing for the purpose is an egregious error that
amounts to bad faith, leading to the conclusion of gross ignorance
of the law, as charged.
 In rehabilitation proceedings, the parties must first be given an
opportunity to prove (or disprove) the existence of an imminent
danger of dissipation, loss, wastage or destruction of the debtor-
company’s assets and properties that are or may be prejudicial to
the interest of minority stockholders, parties-litigants or the general
public.
 the rehabilitation court should hear both sides, allow them to present
proof and conscientiously deliberate, based on their submissions, on
whether the appointment of a management receiver is justified.
(Lorenzana vs. Austria, A.M. No. RTJ-09-2200 (April 2, 2014)
Procedure for creation of 110
Management Committee
 1st member shall be nominated by the debtor; in case the debtor

fails, the court shall appoint the first member;
 2nd member shall be nominated by the creditor/s holding more

than fifty percent (50%) of the total obligations of the debtor; in
case the creditors fail, the court shall appoint the second
member; and
 the third member, who shall act as chairman of the

management committee, shall be nominated by the first and
second members within 10 days from the appointment.
 In case of disagreement between the first and second members,

or failure to nominate, the court shall appoint the third member.
Role of Management 111
Committee
takes the place of the management and the

governing body of the debtor and assume their
rights and responsibilities
 Specific powers and duties are prescribed by Section 33
of the Rules
Powers of Management 112
Committee
1. to investigate the acts, conduct, properties, liabilities, and

financial condition of the corporation, association or
partnership under management;
2. to examine under oath the directors and officers of the entity
and any other witnesses that the committee may deem
appropriate;
3. to report to the court any ascertained fact pertaining to the
causes of the problems, fraud, misconduct, mismanagement
and irregularities committed by any other person;
4. to use the services of or employ such person or persons, such
as lawyers, accountants, auditors, appraisers and staff as are
necessary to perform its functions and duties as management
committee;
5. to report to the court any material adverse change in the
business of the entity under management;
Committee
1. to investigate the acts, conduct, properties, liabilities,

and financial condition of the debtor
2. to examine under oath the directors and officers of the
debtor
3. to report to the court any ascertained fact pertaining to
the causes of the problems, fraud, misconduct,
mismanagement and irregularities committed by any
other person;
4. to use the services of or employ such person or persons
as are necessary to perform its functions and duties as
management committee;
5. to report to the court any material adverse change in
the business of the entity under management;
Committee
6. to evaluate the existing equity, capital, assets and liabilities,

earnings and operations of the entity under management;
7. to determine and recommend to the court the best way to

salvage and protect the interest of the creditors, stockholders
and the general public, including the rehabilitation of the entity
under management;
8. to prohibit and report to the court any encumbrance, transfer,

or disposition of the debtor's property outside of the ordinary
course of business or beyond what is allowed by the court;
9. to prohibit and report to the court payments made outside the

ordinary course of business;
Committee
10. to have unlimited access to the employees, premises, hooks,

records and financial documents of the entity under
management during business hours;
11. to inspect, copy, photocopy or photograph any document,

paper, book, account or letter, whether in the possession of the
entity or other persons, that pertain to the business of the
debtor;
12. to gain entry into any property owned by the entity under
management for the purposes of inspecting, measuring,
surveying, or taking photos or videos of any designated
relevant object or operation thereon;
13. to bring to the attention of the court any material change

affecting the entity's ability to meet its obligations;
Committee
14. to take the appropriate steps to modify, nullify or revoke
transactions coming to its knowledge which it deems detrimental
or prejudicial to the interest of the entity under management;
15. to recommend the termination of the proceedings and the
dissolution of the entity if it determines that the continuance in
business of such entity will no longer work to the best interest of the
stakeholders and creditors, in accordance with the purposes of
the Act;
16. to apply to the court for any order or directive that it may deem
necessary or desirable to aid it in the exercise of its powers and
performance of its duties and functions, including the power to
examine parties and witnesses under oath; and
17. to exercise such other powers as the court may, from time to time
confer upon it.
Conflicts of Interest
117
 If a creditor, owner, partner or stockholder of the debtor

 If engaged in a line of business which competes with that
of the debtor;
 If within five (5) years from the filing of the petition, was
a director, officer, owner, partner or employee of the
debtor or any of the creditors, or the auditor or
accountant of the debtor
 If within two (2) years from the filing of the petition, was
an underwriter of the outstanding securities of the debtor
Conflicts of Interest
118
 related by consanguinity or affinity within the fourth civil

degree to any individual creditor, owners of a sale
proprietorship-debtor, partners of a partnership- debtor
or to any stockholder, director, officer, employee or
underwriter of a corporation-debtor
 If with any other direct or indirect material interest in the

debtor or any of the creditors.
119
Creditors’ Committee
 creditors belonging to a class may formally organize a

committee among themselves
 Secured creditors, unsecured creditors, trade creditors and suppliers and
debtor’s employees
 Receiver must attend meeting for this purpose

 Role is to assist the rehabilitation receiver in
communicating with the creditors and shall be the
primary liaison between the rehabilitation receiver and
the creditors.
 cannot exercise or waive any right or give any consent on behalf of any
creditor unless specifically authorized in writing by such creditor.
Determination of Claims 120
Receiver has to establish a preliminary registry of

claims within 20 days from assumption into office
 Has to be made available for public inspection after
publication notice to the debtor, creditors and
stakeholders on where and when they may inspect it
 Ensure that all claims in the register are supported by
sufficient evidence.
Within 30 days, debtor, creditors, stakeholders

and other interested parties has to submit a
challenge to claim/s to the court, serving a
certified copy on the rehabilitation receiver and
the creditor holding the challenged claim.
 Thereafter, receiver has to submit to the court the
registry of claims which shall include undisputed claims
that have not been subject to challenge.
 Receiver’s decision regarding a claim is appealable to
the court.
 Within 30 days, debtor, creditors, stakeholders and other

interested parties has to submit a challenge to claim/s to
the court, serving a certified copy on the rehabilitation
receiver and the creditor holding the challenged claim.
 Thereafter, receiver has to submit to the court the registry of
claims which shall include undisputed claims that have not
been subject to challenge.
 Receiver’s decision regarding a claim is appealable to the
court.
Treatment of Secured 123
Creditors
 issuance of the Commencement Order and the

Suspension or Stay Order does not in any way to
diminish or impair the security or lien of a secured
creditor, or the value of his lien or security.
1. except that his right to enforce said security or lien may
be suspended during the term of the Stay Order.
2. a secured creditor may be allowed to enforce his security

or lien, or foreclose upon property of the debtor securing
his/its claim, if the said property is not necessary for the
rehabilitation of the debtor.
Lack of Adequate Protection 124
 court may, on motion or motu proprio, terminate,

modify, or set conditions for the continuance of the
Stay Order, or relieve a claim from the coverage
thereof upon showing that
 a creditor does not have adequate protection over
property securing its claim; or
 the value of a claim secured by a lien on property which
is not necessary for rehabilitation of the debtor exceeds
the fair market value of the said property.
Lack of Adequate Protection 125
A secured creditor lacks adequate protection if it can be

shown that:
 the debtor fails or refuses to honor a pre-existing agreement with
the creditor to keep the property insured;
 the debtor fails or refuses to take commercially reasonably steps

to maintain the property; or
 the property has depreciated to an extent that the creditor is

undersecured
Remedy of Creditor that Lacks 126
Adequate Protection
Upon showing of a lack of adequate protection, the

court shall order the rehabilitation receiver to
 make arrangements to provide for the insurance or
maintenance of the property,
 make payments or otherwise provide additional or
replacement security such that the obligation is fully
secured.
Remedy of Creditor that Lacks 127
Adequate Protection
 Upon showing of a lack of adequate protection, the court

shall order the rehabilitation receiver to make
arrangements to provide for the insurance or maintenance
of the property; or to make payments or otherwise
provide additional or replacement security such that the
obligation is fully secured
 If not feasible, modify Stay Order to allow the secured
creditor lacking adequate protection to enforce its claim
against the debtor unless such remedies would prevent
the continuation of the debtor as a going concern or
otherwise prevent the approval and implementation of a
rehabilitation plan.
Content of a Rehabilitation 128
Plan
1. specify the underlying assumptions, the financial goals and the

procedures proposed to accomplish such goals
2. compare the amounts expected to be received by the creditors

under the Rehabilitation Plan with those that they will receive if
liquidation ensues within the next 120 days
3. contain information sufficient to give the various classes of

creditors a reasonable basis for determining whether supporting
the Plan is in their financial interest
4. establish classes of voting creditors
5. establish subclasses of voting creditors if prior approval has been

granted by the court
Plan
6. specify the treatment of each class or subclass described in

subsections (d) and (e);
7. provide for equal treatment of all claims within the same class or
subclass, unless a particular creditor voluntarily agrees to less
favorable treatment;
8. ensure that the payments made under the plan follow the priority
established under the provisions of the Civil Code on concurrence
and preference of credits and other applicable laws;
9. maintain the security interest of secured creditors and preserve the

liquidation value of the security unless such has been waived or
modified voluntarily;
Plan
10. disclose all payments to creditors for pre-commencement debts

made during the proceedings and the justifications thereof;
11. describe the disputed claims and the provisioning of funds to
account for appropriate payments should the claim be ruled valid or
its amount adjusted;
12. identify the debtor's role in the implementation of the Plan;
13. state any rehabilitation covenants of the debtor, the breach of
which shall be considered a material breach of the Plan;
14. identify those responsible for the future management of the debtor
and the supervision and implementation of the Plan, their affiliation
with the debtor and their remuneration;
Contents of a Rehabilitation 131
Plan
15. state any rehabilitation covenants of the debtor, the breach of

which shall be considered a material breach of the Plan;
16. identify those responsible for the future management of the debtor
and the supervision and implementation of the Plan, their
affiliation with the debtor and their remuneration;
17. address the treatment of claims arising after the confirmation of

the Rehabilitation Plan;
18. require the debtor and its counter-parties to adhere to the terms of
all contracts that the debtor has chosen to confirm
19. arrange for the payment of all outstanding administrative expenses

as a condition to the Plan's approval unless such condition has been
waived in writing by the creditors concerned;
Contents of a Rehabilitation 132
Plan
20. arrange for the payment of all outstanding taxes and assessments,
or an adjusted amount pursuant to a compromise settlement with
the BlR or other applicable tax authorities;
21. include a certified copy of a certificate of tax clearance or
evidence of a compromise settlement with the BIR;
22. include a valid and binding r(,solution of a meeting of the debtor's
stockholders to increase the shares by the required amount in cases
where the Plan contemplates an additional issuance of shares by
the debtor;
23. state the compensation and status, if any, of the rehabilitation
receiver after the approval of the Plan; and
24. contain provisions for conciliation and/or mediation as a
prerequisite to court assistance or intervention in the event of any
disagreement in the interpretation or implementation of the
Rehabilitation Plan.
Approval by Creditor 133
 Receiver has to notice creditors and stakeholders that

Plan is ready for examination
 Within 20 days, convene creditors for purpose of
voting on plan’s approval
 deemed rejected unless approved by all classes of creditors
whose rights are adversely modified or affected by the Plan
 if members of the said class holding more 50% of the total
claims of the said class vote in favor of the Plan
 based solely on the amount of their respective claims based
on the registry of claims
Petition
Commencement Order
Initial Hearing
Give due course

to the Petition
Receiver to
Review/Revise/ If there are disputes,
within 90 days Modify/Replace refer to ADR
Rehabilitation Plan
Present to Creditors
for Approval
Petition
Commencement Order
Initial Hearing
Give due course

to the Petition
Present to Creditors
for Approval
Rejected Approved
Liquidation Implementation
Hearing of
objections
Cramdown
Despite rejection, court can 136
still approve if:

1. Rehabilitation Plan complies with all the requirements of
FRIA
2. rehabilitation receiver recommends the confirmation
3. shareholders, owners or partners of the juridical debtor lose

at least their controlling interest as a result of the
Rehabilitation Plan
4. Rehabilitation Plan would likely provide the objecting class

of creditors with compensation which has a net present
value greater than that which they would have received if
the debtor were under liquidation
137
When to deny remedy of
rehabilitation
(Wonder Book vs. PBCOM (G.R. No. 187316 Jan 16, 2012
If insolvency appears to be irreversible and whose sole

purpose is to delay the enforcement of any of the
rights of the creditor rendered obvious by the
following:
1. the absence of a sound and workable business plan;
2. baseless and unexplained assumptions, targets and
goals;
3. speculative capital infusion or complete lack thereof
for the execution of the business plan;
4. cash flow cannot sustain daily operations; and
5. negative net worth and the assets are near full
depreciation or fully depreciated.
Sole Grounds for Objection to 138
a Plan
1. creditors' support was induced by fraud

2. documents or data relied upon in the Rehabilitation Plan
are materially false or misleading
3. Rehabilitation Plan is in fact not supported by the voting
creditors
139
Hearing on the Objections
 Objections must be made during the relevant period

 Court issues order setting time and date for the hearing
of objections
 If objection is meritorious, court can either
 Order Receiver to cure the defect, if feasible or
 If court determines that debtor acted in bad faith, or that it is not
feasible to cure the defect, convert the proceedings into one for
the liquidation.
140
Confirmation of Rehab Plan
Issued if
 no objections are filed within the relevant period
 Even with objections, they lack merit or basis has been
cured
Court may confirm Rehab plan notwithstanding

unresolved disputes over claims if the
Rehabilitation Plan has made adequate provisions
for paying such claims.
141
Termination of Proceedings
Successful implementation
Failure of rehabilitation
 Dismissal of the petition by the court
 debtor fails to submit a Rehabilitation Plan
 Even with rehab plan, there is no substantial
likelihood that the debtor can be rehabilitated within
a reasonable period commission of fraud in securing
the approval of the Rehabilitation Plan or its
amendment
 Analogous circumstances.
Termination of Proceedings: Failure to 142
complete rehab proceeding within 1

year
 the RTC erred in giving due course to the petitioner’s action.
 utterly disregarded the Rules on Corp Rehabn in the guise of liberal
construction and granted the petition for rehabilitation based on
insufficient evidence.
 NBC inventory did not mention the condition of its listed assets and merely
enumerated certain real properties and their respective sizes and market
values.
 Rehab court should have dismissed the petition as it had not approved
any rehabilitation plan within the period specified by law.
 when petitioner declined to comply with the simpler rules of rehabilitation,
when the documentation of its assets were inadequate, and the when the
creditors’ opposition offered insurmountable basis for shelving the entire
effort. . . obviously, its continued operation would no longer be viable.
(North Bulacan Corporation vs. PBCOM, G.R. No. 183140, August 2, 2010)
Petition
Commencement Order
Initial Hearing
Give due course

to the Petition
Presentation of Rehab
Plan to Creditors
Approval
Implementation
Failure Successful
Liquidation Restored
Effects of Confirmation of 144
Rehab Plan
 binding upon all affected parties – debtor, creditors – whether

they participated in the proceedings or opposed the Plan or
whether or not their claims have been scheduled.
 Debtor has to carry out the plan
 Payments shall be made according to the provisions of the
Rehab Plan
 Contracts and other arrangements between the debtor and its
creditors to be interpreted as continuing to apply to the
extent that they do not conflict with the provisions of the
Rehabilitation Plan
Effects of Confirmation of 145
Rehab Plan
 compromises on amounts or rescheduling of timing of

payments by the debtor shall be binding on creditors
regardless of whether or not the Plan is successfully
implement; and
 claims arising after approval of the Plan that are
otherwise not treated by the Plan are not subject to any
Suspension Order.
Remedies when rehab plan is 146
approved
Motion to dismiss in the SC is not appropriate

when rehab plan has already been
approved by rehabilitation court and in fact
already being implemented.
BPI vs. Shemberg Biotech Corporation,

G.R. No. 162291, August 11, 2010
147
Proper Mode of Appeal
 proper mode of appeal is through a petition for certiorari to

the Court of Appeals under Rule 65 of the Rules of Court
within fifteen (15) days from notice of the decision or order,
based on Section 2, Rule 6, FR Rules modifying the Court’s
ruling in New Frontier Sugar Corporation v. RTC, Branch 39,
Iloilo City which previously held that the proper mode of
appeal in cases of corporate rehabilitation is through a
petition for review under Rule 43 of the Rules of Court to be
filed within fifteen (15) days from notice of the decision or
final order of the RTC.
China Banking Corporation vs. Cebu Printing and
Packaging Corporation, G.R. No. 172880, August 11, 2010
Liquidation vs.
• all about deciding who to pay, in what order to pay,

and how much to pay in an efficient and equitable
manner
• efficiency and equity sometimes may be competing

policy goals
• the way a country pursues those goals, insolvency

law says a lot about the attitudes of its legal system
The Pro Debtor – Pro Creditor
Continuum
• Different countries implement the doctrines

differently.
• how pro-debtor or pro-creditor is the country’s

bankruptcy regime?
• a pro-debtor regime encourages

entrepreneurial risk-taking.
• a pro-creditor regime encourages the provision

of liquidity to business.
Continuum
What is a “pro-debtor” regime?
• one that dwells on increasing the size of the debtor’s

estate by destroying creditor rights.
• every effort is made to maximize the value of the

debtor’s assets for ultimate distribution to creditors.
• debtors and their employees ought to be saved, and if

need be, all creditors ought to contribute to this
rescue.
Continuum
What is a “pro-creditor” regime?
• connotes that creditors ought to be able to avoid

losses that result from the default of a debtor.
• allows creditors to avail themselves of protection

through security interests and set-offs.
• allows a wide class of third party owners to claim

their property held by the bankrupt ahead of other
creditors.
Continuum
• operating at either extreme on the continuum

is problematic.
• credit may be hard to come by for many firms in a

pro-debtor regime, simply because lending
institutions fear the all-too-favorable rules for
debtors.
• rules that are skewed too far in favor of creditors

hardly create an environment friendly for
entrepreneurs.
Continuum
Hong Germany,
Kong Canada
Netherlands,
and and the
Sweden, Belgium and
Singa United Italy Most
Switzerland Luxembourg
pore States
Most 1 2 3 4 5 6 7 8 9 10 Pro-
Debtor
Pro- Australia, Japan, Austria, Greece, France
Korea, New Portugal,
Creditor England,
Zealand,
Denmark,
Spain, and
and and South
Norway, Africa most Latin
Ireland
and America
Scotland countries

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Court Supervised

Prof. Maria Lulu G. Reyes

On the Brink Corporation

• recently announced that it has developed a fuel

• Registered and patented the same

• announcement was supported with various

• exhaustive laboratory tests have likewise

• Not enough money to

• its major creditor, Bankable Credit,

• other secured creditors are also

3. Stoppage of work and supplies

• Workers have also filed labor

• invention is worth millions of

• the moment any of the

• What are the options available to OtBC?

OtBC can meet with its

OtBC can meet with its

OtBC can meet with its

OtBC can meet with its

OtBC can meet with its

OtBC can meet with its

Approval or endorsement of creditors holding at least 2/3 of the total

OtBC can meet with its

• OtBC met with its

• OtBC met with its

• OtBC met with its

OtBC met with its

OtBC met with its

• the historical and traditional

• tends to be universal in its

• in a competitive market economy, an

• liquidation process can only function

• Only way to ensure an orderly, transparent

Corporate Rehabilitation Proceedings

2. A creditor can file a petition for Involuntary

• facilitates quick and easy

 Enables a majority of creditors to bind all other

 Provides for judicial or other supervision to ensure

 Enables the emphasis on the concept of the

• all about deciding who to pay, in what order

• efficiency and equity sometimes may be

• the way a country pursues those goals,

b. create and appoint a management committee x x x to

 in addition to proceedings for simple suspension of

Financial Rehabilitation and

Financial Rehabilitation Rules

Declared Policy of FRIA

 Proceedings initiated are considered in rem, summary,

Rehabilitation proceedings are summary and

 Rehabilitation is xxx available to a corporation

Wonder Book Corporation v. Philippine Bank of Communications

 remedy should be denied to corporations whose

1. Voluntary petition – filed by the debtor or group of

The following are excluded from FRIA

 A “creditor” is a holder of a claim against the debtor that arose

Definition of Claim under FRIA

If voluntary, petition can be

1. The debtor is insolvent

2. The rehabilitation or continuation of operations is

3. The creditors can recover, by way of the present

4. Identification of the debtor, its principal activities

5. Statement of the fact of and the cause of the

6. The specific relief sought pursuant to the FRIA;